Partnerships key to CUs, banks in mobile services: Boston Fed report

September 3, 2015

BOSTON (9/3/15)--Smaller credit unions and banks must not fall behind on offering mobile banking and payments services, and third-party partnerships will be a key strategy for them, according to a new report of financial institutions in five Federal Reserve districts.

“No single institution has the market power to develop and succeed with its own proprietary solution today,” said the report. “Mobile Banking and Mobile Payment Practices of U.S. Financial Institutions.”

It found that 43% of financial institutions responding do not plan to offer mobile payment services. Roughly 10% already offer them, while another 47% said they plan to within two years. “Mobile payment” was defined as a payment made via a device at a physical terminal or point of sale.

Like banks, credit unions surveyed knew the value of offering mobile payments. Of the credit union respondents, 37% said mobile payments attract new members, 22% cited competitive pressure and 21% cited retaining members as reasons to offer the service. Becoming a leader of technology and increasing revenue were not as important; they were cited by 3% of credit unions.

Third-party partnerships was a key strategy discussed. Credit unions were more likely than banks to partner with digital wallet providers or Near Field Communication (NFC) wallet providers, although they, like banks, were more likely to prefer third-party providers or a card network. Credit unions said they would partner with:

A third-party provider (76% of credit unions vs. 82% of banks);

A card network (34% vs. 24% at banks);

A digital wallet provider (22% vs. 7% at banks);

An NFC wallet provider (14% vs. 7%); and

A retailer (7% vs. 6%).

Credit unions noted these barriers to providing mobile payments:

Market still immature or fragmented (66% of credit unions surveyed);

Security concerns (76%);

Inadequate/not broadly implemented security tools (38%);

Lack of sufficient expertise to make informed decisions (25%); and

Limited value of mobile payments for purchases (2)1%.

In terms of mobile banking core processing vendors, “credit unions tend to rely on a host of smaller local or regional providers” said the report. It added that, compared with banks, “credit unions differ significantly in how they use core processing providers--in part due to their smaller size and scope of business.”

Creating awareness of the value of mobile banking among member/customers is important to increasing adoption of that service, concluded the report. It found that lack of consumer awareness of mobile banking services and “security concerns’ were top barriers against adopting mobile banking, followed by other channels meeting consumers’ banking needs. Credit unions also cited problems with the “perceived unfriendliness” of mobile apps.

The report is the result of a 2014 survey with 192 credit unions and 433 banks responding. Conducted by the Boston Federal Reserve, it captures a point-in-time snapshot of financial institutions’ mobile services and plans in the Atlanta, Boston, Dallas, Minneapolis and Richmond Federal Reserve districts.

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